Overnight, Nikkei closed lower partly after Japan raised the severity of the ongoing nuclear crisis to the highest level, allied with weaker than expected quarterly revenue release from Alcoa, which also contributed towards the weakness in European stocks. However, in the European session the main event remained the release of a weaker than expected CPI data from the UK, which saw around 70 pips fall in GBP/USD following the announcement, while Gilts future rose around 20 ticks. In other news, EUR/USD traded higher and gained support from comments from Chinese Premier Wen Jiabao that China will continue buying Spanish Treasuries, and China supports EU/IMF bailout steps for Europe, which also witnessed narrowing of the Spanish/German 10-year government bond yield spread. Elsewhere, as the session progressed WTI crude futures pared back most of the earlier losses partly on short-covering, allied with IEA keeping its global demand forecast unchanged despite yesterday's downbeat comments on the US economy by the IMF.

Moving forward, markets look ahead to the US data in the form of trade balance, and monthly budget statement, as well as Bank of Canada rate decision later in the session. Also, the release of the tentative outright treasury operation schedule is also due at 1900 BST, as well as USD 32bln 3y Note auction at 1800 BST.

Asian Headlines

According to minutes of BOJ’s March 14th policy meeting, some board members said reconstruction efforts after the March 11th earthquake and tsunami could boost the economy but the size and timing of those effects were highly uncertain. (RTRS)

In other news, BOJ’s Shirakawa said uncertainty is high about the impact of last month’s devastating earthquake and tsunami on Japan’s economy and reiterated that the bank’s resolve to take appropriate steps as necessary. (RTRS)

Also in the news, Japan raised the severity of its nuclear crisis to the highest level, putting it on a par with the world’s worst nuclear disaster at Chernobyl in 1986 because of the amount of radiation released into the air and sea. (RTRS)

Elsewhere, according to an economist at the State Information Centre, Fan Jianping, China’s economy is likely to expand at about 9% this year, adding that the nation still faces pressure of rising prices in the first half of 2011. (China Securities Journal)

US Headlines:

The White House urged Republicans not to tie an increase in the US debt ceiling to spending cuts and admitted that President Obama’s own vote against an increase in 2006 was a mistake. (RTRS)

European equities traded lower during the session partly due to weakness in Nikkei, allied with weaker than expected quarterly revenue release from Alcoa, and moving into the North American open, European stocks continue to trade in negative territory with basic materials and technology as worst performing sectors.

Index

DAX

CAC

FTSE

EUROSTOXX

SMI

Level

7131.16

3993.67

5994.87

2949.63

6376.23

Change (ticks)

-73.70

-45.03

-58.57

-24.95

-63.88

FX

The release of a weaker than expected CPI data from the UK, saw around 70 pips fall in GBP/USD following the announcement, which was already trading under pressure following much weaker than expected BRC retail sales data from the UK. In other news, EUR/USD traded higher and gained support from comments from Chinese Premier Wen Jiabao that China will continue buying Spanish Treasuries, and China supports EU/IMF bailout steps for Europe

Currency

EURUSD

GBPUSD

USDJPY

Level

1.4462

1.6268

84.18

Change (pips)

0.0026

-0.0078

-0.4200

COMMODITIES

WTI crude futures traded lower overnight and in early European trade on concerns that high fuel prices will destroy demand and after Goldman Sachs advised investors to lock-in commodity trading profits yesterday. However, as the session progressed prices pared back most of the earlier losses partly on short-covering, allied with IEA keeping its global demand forecast unchanged despite yesterday’s downbeat comments on the US economy by the IMF.

Oil & Gas News:

·In its monthly report, the IEA said global product demand remains unchanged for 2010 and 2011, at 87.9 MBPD and 89.4 MBPD respectively, adding that global crude run estimates are lowered by 270 KBPD for Q2 2011, largely due to the Japanese earthquake. It also trimmed forecast for call on OPEC oil in 2011 by 0.1 MBPD to 29.8 MBPD.

·Deutsche Bank raised its Brent oil-price forecast for 2011 to USD 117.50 per barrel from its previous forecast of USD 107.75 per barrel, and raised its Brent oil-price forecast for 2015 to USD 125 per barrel from its previous forecast of USD 105 per barrel, citing reductions in OPEC spare capacity and a strong demand outlook.

·According to Societe Generale, US oil demand growth faded to zero from January to March as higher fuel prices limited consumption.

·Saudi Arabia will hold supplies steady to long-term customers in Asia and Europe in May but is not trying to force extra supplies on to buyers to drive prices down, according to traders.

·Iraqi oil output has risen to its highest level in a decade (15% since August 2010), reaching 2.68 MBPD according to the IEA.

·According to President of BP’s gas unit in China, China will make sweeping changes to its natural gas pricing over the next five years.

Geopolitical News:

·According to rebel fighters, Libyan rebels took position 40km west of Ajdabiyah after clashes with Gaddafi’s forces that left at least three dead. Meanwhile, France and Britain said NATO must step up bombing of Gaddafi’s heavy weapons to protect civilians. French foreign minister also said that NATO’s role in protecting civilians in Libya is not sufficient.

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